tv Nightly Business Report PBS May 6, 2010 1:00am-1:30am EDT
>> it's unprecedented. we've never seen a major developed country like greece come this close to default before. >> susie: clashes between protesters and police rock athens as the greek debt crisis rocks the euro. >> tom: we talk with a leading currency strategist about what the euro's slide could mean for the u.s. dollar and commodity prices. you're watching "nightly business report" for wednesday, may 5. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> tom: good evening. violent demonstrations in greece today left three people dead in athens. susie, thousands of workers took to the streets, protesting tough cost-cutting measures that the greek government says are needed to pull the country out of a severe debt crisis. >> susie: tom, those demonstrators are angry about cutbacks including wage freezes, higher taxes, and cuts in pension benefits. those austerity measures are conditions set by the european union and the international
monetary fund in exchange for giving greece $145 billion in bailout money. >> tom: the situation is so serious that greece's prime minister said the country is, quote, "on the edge of the abyss" and there are worries about contagion. moody's today said it might cut portugal's debt rating. >> tom: the clashes and concern about european i.o.u.s have pushed the euro to its lowest level in 14 months against the dollar. rebecca patterson is the global head of currencies and commodities at j.p. morgan private bank. welcome to "nightly business report". >> thank you. >> tom: we saw that significant drop in the euro versus the dollar. where do we go from here? >> well, unfortunately, i think the euro weakness is far from over. we are looking at a longer term fair value for the euro, somewhere between 115 and 120. so even though the euro has fallen a long way from out november high around 151, we think it's still headed lower. >> tom: that's another significant drop from where we are tonight. do you see volatility or a
slow and steady drop in the euro? >> well, volatility in the short term, yes. but careful how we phrase that. in the short term i think a lot of bad news is priced in, i think a lot of investors out there are already short the euro. so i wouldn't be surprised if we see volatility in both directions, i. e. the euro is choppy in the short term. however, i don't think this is a crisis that will go away easily. the fiscal alsoer they greece has to under take is extraordinary. the problems within europe more structurally are also fairly extraordinary. so maybe in the short term we're choppy in a range, but longer term i think the end game has to be a lower euro. >> tom: so we've got the problems in the mediterranean area, with the debt downgrade, spain last week and concerns about italy. but we're seeing a tale of two europes, the german economy seems to be growing strong, and how does this play out then with the lower euro? >> well, this is one of the
reasons why i think even with bad news, and the euro is going to go lower over the more medium term, if you look at germany, about 45% of their economy is from exports. and it's not just exports to greece and italy. it's to the united states, to asia, to the middle east, to a lot of places in the world where demands improving. so germany's economy is doing quite well, actually. what i fear is that maybe at six or nine months down the road, but at some point germany is going to require higher interest rates. higher interest rates at the e. c. b., european central bank, went down that road would be a nail in the coffin for places like greece. so that dichotomy i think is going to be a big stress and probably end up pulling the euro lower. >> tom: back oh the dollar, it may look strong against the euro, but what about other currencys out there? is the dollar strengthening? >> that's a great question. everyone looks at the euro, dollar and say a is the dollar, but it's far from it. the euro is about 18% of the
trade weight of the dollar. the dollar against all the countrys that the united states trades with. and when you look at a broader picture of the u.s. dollar today, it actually flat to slightly lower. so the dollar is strengthening against the you're row and the japanese yen, but it's weakening against most other currencys in the world, especially commodity currencys, countrys that export a lot of commodities and currencys whose countries have attractive interest rate in a world where the fe gives you close to nothing on yield. >> tom: want to take a look at a 12-month price of crude oil because we did see crude oil prices drop below $80 a barrel. what do you make of this particular commodity which is priced in u.s. dollars? >> it's interesting, a lot of investors say we need a weaker dollar to have stronger oil prices. and there is reason for that. oil as most commodities are priced and invoiced in dollars. so if the dollar goes down a producer might want to raise his price to keep the revenue steady stream adjusted for the currency effect.
but in reality if the u.s. economy is doing well and the global economy outside of greece is doing well, demand for commodities is going to be strong, and that demand even if the dollar is strengthening i think can push up the price of oil. we're looking for $90 a barrel by the end of this year and we think risks to that are to the up side. >> tom: okay, with the oil forecast there with rebecca paterson, we'll leave it there. rebecca paterson with j. p. morgan private bank. >> susie: progress today on the gulf oil spill. b.p. capped one of three leaks at its deepwater horizon well in the gulf of mexico. it also sent a giant containment dome out to the site. b.p. hopes to have that in place and capturing oil by monday. but the company thinks 5,000 barrels of oil a day are still flowing into the gulf. the coast guard is doing another controlled burn on the oil slick, trying to help contain it. the government closed off some areas to fishing earlier this week. members of the national fisheries institute made the rounds in washington today, visiting lawmakers and members
of the administration about the spill and its impact. mike voisin of louisiana's oyster processing firm motivate it says people shouldn't write off seafood because of the spill. >> a lot of our production in louisiana-- 84% of it-- is west of the river. so we're still going to produce product. it will change distribution chains and it'll cause some disruptions, but people should continue to go out and enjoy the seafood they've always enjoyed. >> susie: separately, virginia's governor bob mcdonnell said today he's still committed to making virginia the first on the east coast to drill offshore for oil and gas. but, he said he needs answers from the oil industry about the b.p. spill and how it happened. >> tom: here are the stories in tonight's "n.b.r. newswheel." as we mentioned, the greek debt crisis worried wall street again today; the dow dropped 60 points, the nasdaq fell 22, and the s&p 500 was down almost
eight. big board exchange only volume dropped a little from yesterday while nasdaq volume was up a touch. newsweek is up for sale. the washington post company today hired investment banker allen and company to explore options for the money-losing weekly magazine. and freddie mac needs more help from uncle sam. late today, the mortgage finance company under government control said it needs another $10.5 billion in federal aid. the request came after freddie posted a $6.5 billion first quarter loss. the new request brings the total tab for rescuing freddie to over $61 billion. still ahead on the program, what's new for the world's number three beverage? one that's been around since 9000 b.c. we talk with molson coors c.e.o. peter swinburn. >> susie: financial reform continued working its way through the senate today: lawmakers voted to drop a controversial $50 billion fund that would have reimbursed taxpayers for the cost of any
future big bank failures. the money in that fund would have come from the big banks themselves. republicans worried that money would become a permanent bailout fund. the obama administration was also opposed to the idea. so the fund is out of the senate bill, but k.b.w. washington analyst brian gardner says big banks will still be on the hook when the next financial crisis hits. >> instead of ponying up some money ahead of time, now they are going to have to pay for everything after the fact. it's really just a question of timing. it doesn't really affect the government's power to shut down a failing institution. not to mention, we still have a house bill out there, which people have kind of forgotten about, which has a $150 billion pre-funded resolution fund. and that's all going to have to be worked out. >> susie: another issue facing senators: whether to slap size restrictions on banks so they don't get too big to fail in the first place. >> tom: one firm that did fail: bear stearns. it's gone, but questions about its collapse remain.
the financial crisis inquiry commission today heard from the company's former executives. bear was the first financial firm to get caught up in the credit crunch. as stephanie dhue reports, bear's implosion foreshadowed the financial meltdown that followed. >> reporter: bear stearns former chairman james cayne says he was shocked in march of 2008 when his firm failed. but he admits bear was over- leveraged. >> that was the business; that was really industry practice. in retrospect, in hindsight, i would say the leverage was too high. >> reporter: bear stearns held $47 billion in mortgage backed securities as housing prices fell and sub-prime loans soured. commission chairman phil angelidies says bear stearns was leveraged 42-1. >> how was that model sustainable in the event of any market disruption of significance? >> reporter: alan schwartz who succeeded cayne as c.e.o. in january of 2008, told the panel leverage wasn't the firm's problem. he says the fault lies with an
over-reliance on credit ratings of those complex mortgage-backed securities. >> the lack of transparency in the instruments made it impossible to determine which ones on anybody's balance sheets were actually very risky versus less risky, so there was a reliance on ratings to figure out what somebody's balance sheet looked like, and then when the ratings failed, there was no other way to distinguish who was holding risky instruments and who as holding safe instruments. >> reporter: regulators were also in the spotlight. the securities and exchange commission oversaw the big five investment banks, which included bear stearns. former s.e.c. chairman chris cox says regulators didn't have the muscle to reign the firms in. >> you're going tell goldman sachs, and you're going to tell morgan stanley, and you're going to tell every one of these firms, you don't understand your own risk models, we understand them better, if you're going to get to that point where you tell people how to run their business, you're going to need an army.
>> reporter: chairman angelidies expressed frustration with getting to the bottom of the financial crisis. he says it appears to have been an immaculate calamity where no one was responsible. stephanie dhue, "nightly business report", washington. >> susan: tom of all the problems we were talking about at the start of the program about what's going on in greece, investors were jumping over to the bond market, looks like that's where the action was, not the stock market, at least for today. >> tom: absolutely, it was
selling stocks the last couple of days and buying bonds instead. so let's take a look at tonight's market focus. with so much focus on europe recently, that has benefited uncle sam's bonds. we have seen the yield on the ten-year government bond drop to new lows for the year. one month ago, market interest rates were up thanks to stronger earnings and economy. in early april, the benchmark u.s. interest rate hit 4%. today, it touched 3.5%. remember, as rates move down, bond prices move up. financial stocks were mixed after yesterday's route. the intercontinental exchange helped improve the tone. first quarter results came in a nickel better than forecast. intercontinental trades commodities, currencies, and other derivatives. it was its best quarter with profits jumping 40% thanks to energy trading. shares of ice were hot today, up 4%. as financial regulation moves forward in congress, the
exchange says it continues to grow its business of clearing of derivatives like credit default swaps, putting it ahead of rival exchanges. there's been lots of focus on transocean lately. it owns the oil rig that blew out april 20, leading to the gulf oil leak. after the close tonight, the focus shifted to earnings. profits were 12 cents better than expected even while revenues dropped slightly. company executives are due to hold a conference call tomorrow morning. shares have dropped 20% since the blowout, but stabilized during the regular session. the stock was up just over 1% after the earnings release. energy stocks were among the weakest today. leading the losses, nat gas firm williams, dropping almost 5% after reporting a quarterly loss. gas and oil firm e.o.g. fell a day after lackluster revenue
growth. and cabot dropped to a seven- month low. imagine seeing three quarters of your investment erased in a day. that's the case for investors in biotech intermune. last night i.t.m.n. was over $45 a share. tonight, it's closer to $11 after the f.d.a. rejected a proposed lung medicine. that stock jump you see in march came when an outside panel recommended the f.d.a. okay the treatment. clearly, the rejection came as a big surprise and disappointment. also in the health business, myriad genetics fell to a new low after disappointing quarterly results. ad spending is coming back for media giant time warner. and the future is looking good enough for the company to say its 2010 outlook may be too conservative. a 9% jump in advertising helped time warner turn in better than expected profits in the first quarter. what has long been a laggard in
time warner's portfolio, its namesake "time magazine", even saw more ad sales. but the stock dropped about 2%. it's cable news networks continue to see weaker ratings and a drop in ad revenues. another media company, dolan media, saw a big 10% rally. dolan concentrates on business information and services. strong earnings helped push the stock up on heavy volume. and g.p.s. device maker garmin lost its way in the first quarter. the company calls its results mixed, investors just plain didn't like them. profits missed expectations with revenues showing a surprise drop. competition from g.p.s. enabled smartphones has been coming on strong. shares had a clear direction today: down. the stock dropped to six-week lows on five times normal volume. and that's tonight's "market focus."
>> susie: making beer is a brewing technique that dates back to the 6th century b.c. but for beer maker molson-coors, it's the future, not the past that counts. and the company's c.e.o. peter swinburn sees its future on the internet. new york bureau chief scott gurvey talked with swinburn, and began by asking how new media is changing the marketing of his age-old product. >> it's significantly on the speed at which things happen, is just much greater. my example of that is that in the united kingdom we have a junior brand, the biggest brand in the united kingdom is called carling and we launched an idea on the web which was carling i pint, which is
downloaded to your screen and you can think it, virtually drink it. and i was aware this was happening, my son rang me up and told me about it and said this is great, dad. this is great, and i needed to know about why didn't you tell me about it. it's been out for 12 hours on the web. and he called me from the u. k. to tell me about it. so it's the speed that, is the thing that's different. >> so you get feedback instant instantly? >> you do, from your consumers and you get feedback about not just your brands but your company, what they think. and i think the skill of business is opening up to absorb that and have a real dialogue with consumers. >> and that must also be kind of tricky, because obviously you're going to hear when they like something, you're going to hear when they don't like something. have you to respond in an engaging way no matter what that is. >> i think that's the answer, it's engaging.
it's not being defensive. it is engaging, it's lessening to consumers, because we are a branded business and we have to follow consumers and have to understand where they're going. and so it's really important for us to understand that. >> what are you seeing now in the business sense, is business picking up from where it was last year? >> no, we're still challenging, we expect the first half to be challenging. and we hope that the second half will begin to pick up a little bit. but the important thing for us is that we're in a very good position. we had a good year last year. most of our major brands that we invest behind, five out of six actually grew. we're continuing to invest heavily behind our brands. and consumers feedback to us, again listening to them, that value that, is not just in terms of sales, it's the communication we have with them as well. >> are you particularly vulnerable to changes in commodity prices? >> we hedge, like most big companies, we hedge to keep the volatility down.
so we still got some of the larger input prices in our hedging, that's working its way out, i will work its way out the first part of the year and then we should see some benefit coming through. >> what kind of things are you could be in terms of expansion of the brands? >> we've done quite a lot of stuff. but certainly coming into this year we've got a new product which will be a home draft product, so it's bringing draft beer into the home. that's based on the fact that if you talk to consumers, about 66% of consumers believe that draft beer is of superior quality to bottled beer, there has been a move to drinking at home more. so we're just trying to pull these two things together. so we've launched coors light and miller light same this year. >> that must be difficult to do >> it is, it's a challenge to bring it to market at a price that's relevant and also to get it into a package that works for the consumer. so a lot of work making sure it fits into a fridge, and can be dispensed, and the fridge door can close, and the
technology and the formulation of the beer is kept fresher with the over 30-day period. >> when will we see that? >> july this year. >> i imagine there's a massive marketing effort that will go behind that. >> we'll be letting people know it's available. >> thank you very much. >> thank you, nice to meet you. >> tom: here's what we're watching for tomorrow. treasury secretary timothy geithner testifies before the financial crisis inquiry commission. is the retail recovery for real? we'll find out from the report on chain store sales for april. also, the new normal for housing. it's been a tough couple of years for the market, we'll look at the current reality for real estate. >> susie: cnn's parent company time warner today confirmed the cable news outlet is exploring ways to share news footage, bureaus, and equipment with broadcaster cbs. time warner says a partnership with cbs or any other news network is, quote, "entirely possible."
cnn's viewership has dropped off sharply since the 2008 presidential election, and news ratings have been down at cbs. the media giants have talked repeatedly over the years about sharing resources but never inked a formal deal. >> tom: many closed chrysler dealerships will soon learn their final fate. nearly 800 dealers were ordered shut last year as part of chrysler's bankruptcy. about half said they'd fight to stay open, but many have since taken settlement offers from the automaker or given up. still, about 250 dealers are in arbitration with chrysler. as of today, the automaker has won three of its past four cases. a dozen or so hearings will take place in the next week with another 50 the week after.
>> susie: in the "money file" tonight, redefining what it means to be financially secure. here's jonathan pond, author of "safe money in tough times." >> reporter: the great recession has altered the way individuals and families think about money and financial security. the new affluence is a redefinition of what it means to be financially comfortable. it is becoming clear that new approaches to personal financial planning are essential. you and i seek new ways to protect what we have and make prudent money decisions in the future. we yearn for certainty in an uncertain world. therefore, we seek more safety,
simplicity, and predictability in our financial lives. safety involves opting for financial strategies that will protect our financial futures, even if it requires lower investment returns or higher costs. examples include guaranteed investments and insurance that protects against various investment and health risks. during the halcyon days of rising stock prices and rising home values, it was very easy to complicate your financial life through non-traditional mortgages and complex investments. in the future, however, smart consumers will prefer to simplify their financial lives, and it doesn't take a whole lot of effort to find ways to do that, and save money to boot. finally, after all we've been through, we will prefer more predictability in our financial futures. there are plenty of ways to achieve this, including automatic saving, fixed-rate mortgages, and exchange-traded funds. the new approaches under the new affluence will empower you to
take control of your financial future in a changed economy. i'm jonathan pond. >> susie: that's "nightly business report" for wednesday, may 5. i'm susie gharib. goodnight everyone and goodnight to you too, tom. >> tom: good night, susie. i'm tom hudson. goodnight everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org